Post navigation

The High Cost of Care in a Sellers Market

Below, a guest-post by David Spero, R.N. Spero is the author of Diabetes: Sugar-Coated Crisis — Who Gets It, Who Profits and How to Stop It, a book that Thomas Bodenheimer MD, Professor of Family and Community Medicine, University of California, San Francisco describes as “a hard-hitting and beautifully written look at the social causes and cures of chronic illness… illuminates the true reality of diabetes and provides cutting-edge ideas on prevention and treatment.” (Bodenheimer’s recommendation puts it on my “to-read” list.)

In this post, Spero explains why “free market competition” doesn’t work to bring us affordable health care. Quite simply, the seller has too much power. Drug-makers and device-makers set their own prices, with little push-back from public-sector or private sector payers. Lobbyists have managed to push through a law stipulating that Medicare cannot negotiate for lower drug prices. As for private insurers, they have found that if they don’t cover all of the drugs advertised on TV, they lose customers. So for the past ten years they have been shelling out whatever the manufacturer demands, while passing the cost on in the form of higher premiums.

In the case of doctors and hospitals the situation is more complicated. As I explain in a note following Spero’s post, total reimbursements to providers have been spiraling–though some physicians and medical centers have enjoyed the lion’s share of the gains, while others have watched their income drop.

Suppose I want to buy a used car, and imagine there’s no Cars.com or Craig’s List, and professional used car salesmen are the normal way to buy. So I go to a dealer ask him about maybe a 1998 Honda, thinking that’s what I can afford.

“Oh, no,” says the dealer. “That would be totally wrong for you. You need a 2009 Lexus.”

“But I can’t afford that. I’ve only got $4000.”

“Look. If you don’t get that Lexus, you could die. Or have a terrible accident. Or at the very least, you would have to stop driving after two or three years. Yes, it’s expensive. But this is your future we’re talking about.”

“Well, I guess you’re the expert. If I really need it, I’ll sign the papers and worry about paying for it later.”

Of course, this conversation would be insane. The seller can’t decide what the buyer pays for. That would be the ultimate sellers’ market, in which prices would spiral endlessly upward, and everyone would be driving around in much more car than they needed or could afford. Soon, many buyers would go bankrupt and stop driving entirely, and the system of car-based transportation would collapse. Besides, nobody would allow a car salesman’s opinion to override their own in the first place.

But substitute “doctor” for “car dealer” and “treatment” for “Lexus,” and you have the exact situation that exists in American medicine now. The sellers – physicians, hospitals, drug companies, medical equipment makers – tell the buyers – us and our insurance providers – what we need. We can say no, but the professionals are the experts. They know far more than we do. (Or at least we think they do.) Sometimes they bully and threaten (“You could die!”) So the sellers have more input into the final purchase decision than the buyers do. And as a result, costs are spiraling upward, people are being over-treated and going bankrupt, and the system is collapsing.

Markets are good for things like cars. The buyer looks for what he wants. When he finds something close, the seller makes an offer and the buyer decides whether the price is acceptable. Eventually they agree on a price, or they don’t, in which case there’s no sale.

But health care is completely different. The sellers are in control. They’re steering purchase decisions. With or without “health care reform,” it makes no difference. Prices will keep going up; unnecessary services will keep proliferating. Individuals, companies, and governments will continue to be bankrupted. Millions will be denied care for lack of funding. And free market advocates will keep saying the market is the answer to our health care crisis.

Our society can decide that everyone is entitled to appropriate medical care, or not. But we can’t provide care to any except the very rich under this topsy-turvy anti-system. Costs will continue to spiral if sellers set the prices and make the purchasing decisions. Eventually we will run out of money, and eventually came about twenty years ago in the US. We’ve been paying medical bills on credit ever since.A sellers’ market can’t control costs. Instead, costs should be controlled, as they are in Europe, with rational, evidence-based decisions on what treatments are effective and affordable, and what they should cost. Of course, such a system will be open to corruption and abuse, but, unlike the present system, at least we would have a chance to do things rationally.

Alternatively, we can deny care to ever-larger sections of the population who can’t pay the escalating prices. Either way, we should stop pretending that the ultimate seller’s market will fix itself. It can’t.

When the Medicare Payment Advisory Commission (MedPAC) breaks out Medicare’s payments to hospitals, it reports that from 1998 to 2008, Medicare fee-for service reimbursements to hospitals for outpatient services shot up 85%. Payments for inpatient services rose by more than 40%. Granted, during this time hospitals were treating more patients, but reimbursements outstripped growth in the number of patients served. From 1998 to 2008, total outpatient visits rose by just 32% while inpatient admissions crept up by just 12%. This suggests that hospitals were “doing more” to each patient. Yet there is no evidence that patient outcomes were better.

In other countries the government regulates what hospitals charge. But in the U.S. Medicare’s hands have been tied by Congress, and the lobbyists who fund Congressional campaigns. As a result, we spend far more, per day, and per operation than in any other country in the developed world. As Jane Sarasohn-Kahn has argued on HEALTHPopuli, in the U.S., hospital care has become a “luxury good.”

Meanwhile, some hospitals—particularly public hospitals that care for large numbers of Medicaid and uninsured patients—are operating in the red, while “brand-name” hospitals charge twice as much for simple procedures. Medicare also pays academic medical centers in some cities far more than it pays others. Traditionally, particularly powerful Congressmen have had the leverage to demand a premium for hospitals in their district.

Just as hospital prices vary, so do profit margins. Contrary to the conventional wisdom, many institutions make a nice profit on Medicare reimbursements. For example, MedPAC reports, in 2008, 25 percent of U.S. hospitals turned a profit of 6.5 percent—or more—on Medicare inpatients, while another 25 percent reported margins that were 20.3 percent below the cost of caring for patients. It is worth noting that during the 1990s the average hospitals saw Medicare profit margins that ran as high as 18 percent. This was, indeed, a “sellers’ market.” Profits didn’t begin to sink until 2004. And even then, in 2008 thirty-seven percent of hospitals boasted positive profit margins while caring for Medicare patients—and 2008 was the toughest year hospitals had seen in fourteen years.

Finally, MedPAC’s research points out that when hospitals are under some financial pressure—either because they have fewer patients, a larger share of Medicaid patients, or because private insurers are paying less—many manage to become more efficient, and profit margins on Medicare patients improve. Indeed MedPAC’s analysis reveals that, on average, institutions feeling pinched turned a 3.7% profit on Medicare patients, while those under no financial pressure lost an average 12.7% on seniors.

This should come as no surprise. Like most other organizations, hospitals tend to spend lavishly when feeling flush, investing in hotel-like amenities, new construction, higher salaries for executives, and pricey, if not fully tested cutting-edge equipment. On the other hand, when money is tight, the same institutions are more likely to concentrate on avoiding waste. And in most cases, when hospitals make that effort, the quality of care also improves. Patients do not benefit from waste.

Most of the 75 percent increase can be traced to higher volume: doctors have been “doing more” as they prescribe more tests, and recommend more procedures. In particular, they’ve been ordering more diagnostic tests, MRIs and CT Scans. From 2003 to 2006 Medicare reimbursements to physicians for imaging services climbed an eye-popping 11 percent a year.

As the MedPAC chart below indicates, from 2003 to 2008, the total volume of services that physicians offered to Medicare patients rose by 22 percent Did seniors suddenly need that many more procedures? Probably not. But as Spero points out, when it comes to health care, the seller steers purchase decisions. Very few physicians consciously over-treat, but there are many grey areas in medicine, and in recent years, residents at most academic medical centers have been taught to practice more aggressive medicine.

Not All Physicians Have Seen Incomes Rise

Of course, over the years, the cost of keeping a practice afloat also has grown. As a result, some doctors who are working solo or in a small group have suffered a drop in net pay—particularly if they are located in an area where the cost of labor and real estate is high. And in some sub-specialties, malpractice insurance premiums have climbed.

But doctors in the most lucrative specialties have watched their incomes mount. Even in the recession, a few specialties stood out. Modern HealthCare’s annual survey shows, for example, that from 2008 to 2009, average compensation for dermatologists jumped by 12 percent, rising 6.7 percent in 2008 and another 5.3% the following year. Meanwhile, orthopedic surgeons topped the list both years, though in 2009, total compensation, including bonuses, crept up by only 1.9 percent—to an average of $485,000.

Will Health Care Reform Create a Buyers’ Market?

Going forward, the Affordable Care Act will boost Medicare payments to primary care physicians and nurse practitioners. At the same time, the Secretary of Health and Human Services (HHS) will have the authority to lower the fees that Medicare pays for services that are “over-valued.” Under the ACA, Congress will not have the power to second-guess these changes and MedPAC has suggested that policy-makers take a close look at particularly lucrative services. Often, they will find that volume is very high—and growing. If they lower fees, volume may well level off, as it did when Medicare trimmed fees for diagnostic imaging.

Meanwhile, Medicare will be re-aligning financial incentives, rewarding physicians for managing chronic diseases—and keeping patients out of hospitals. This should mean fewer hospitalizations.

But health care will never become a buyers’ market. Patients need to be “steered” by health care providers. We rely on their expertise to diagnose what ails us, and prescribe appropriate treatments. But under reform, hospitals and doctors will be paid more to talk to and listen to patients. They will be encouraged to share decision-making, giving patients the information about risks and benefits. Research shows that when patients have this opportunity, they tend to make more conservative decisions than either hospitals or doctors, leading to fewer elective surgeries.

Finally, when it comes to end-of-life care, as more patients are offered palliative and hospice care, they will have a chance to decide how much treatment they want. Some will ask doctors to do everything possible; others will not. The goal of palliative care is to let patients die “in character.” Palliative care specialist Diane Meier elaborates: “There are people who have used denial all their life; they will most likely die in a state of denial. There are people who have been fighters and rebels all their life, and by golly, they want to die that way. And to those patients, we have to help them, to say it’s okay. . . ”

The goal of both palliative and hospice care is “to support the person to stay within his or her own compass,” says Meier. The caregiver is not selling death; she is not attempting to persuade the patient to accept death. Nor is she trying to lengthen life. Whether the patient dies sooner or later is not what is at stake: what is important is how she dies.

47 thoughts on “The High Cost of Care in a Sellers Market”

There are a couple of fundamental problems here. First, doctors never considered it part of their job to know or care about costs. Moreover, we don’t make it easy for them to care even if they want to or reward them if they help to save money for the larger system.
Second, CMS needs to move away from fee for service payment except where it makes sense. Primary care doctors should probably be paid by risk adjusted capitation. Surgical procedures should be subject to bundled pricing. Diagnostic care should continue to be paid on a fee for service basis.
Separately, CMS needs to specifically take cost into account in determining what we cover and pay for and what we don’t. Plenty of services, tests, procedures and drugs are either not cost-effective or no better than less expensive alternatives. Conversely, we need to ensure that we pay adequately for palliative care and hospice consults so people at the end of life can make an informed choice among the options available to them. End of life preferences should be stored on a registry and readily available to providers anywhere when needed.
If CMS can’t move forward on needed coverage and payment reforms because they’re hamstrung by the Congress and lobbyists, commercial insurers should proceed on their own on behalf of their under 65 and Medicare Advantage populations. As rising costs become more untenable, taking some heat without waiting for CMS to provide political cover may be unavoidable.
While I think high deductible plans could help to make patients more cost conscious and substantive tort reform could, over time, reduce defensive medicine, I think both can take a back seat for the time being. The bottom line is that incentives matter and it’s important to get them right for all stakeholders. We have a long way to go.

Speaking of stakeholders, I am a supporter of the PPACA for the reasons Maggie sets forth here. But I represent a group of beneficiaries who rely on a multi-employer plan. We are discovering that this legislation was designed with insurance companies, self-employed people, small businesses and folks with one job with one employer in mind. If the employer does not offer a plan design in compliance, the employer is penalized. But who are our employers? I have over a dozen and I don’t work fulltome for any of them. But they all contribute to a plan that, if I qualify with enough contributions, I get coverage. Our plan had several tiers, the better to capture as many people as possible, even if they’re not working enough to get a lot of contributions. The thinking was: better a minimal plan and better to get something out of the contributions than to get nothing. But we are being treated now by an HHS that does not seem to understand us, or want to understand us, and who do not have a useful option for our members who may lose even their minimal coverage before 2014 when they can turn to the exchanges. It’s very frustrating. If we bring the plan fully into compliance as of this year two thirds of our members will lose their benefits.

Barry, Martha
Barry–Thank you for your comment.
I agree with virtually everything you say.
I’m not at all sure that insurers will be willing to “take the heat” without political cover from CMS– they were hit hard by the backlash against managed care in the 1990s. But I certainly wish that they would– as long as they rely on independent comparative-effectiveness resarch when making their decisions about what to cover.(As you know, they often didn’t do this in the 1990s, which was part of the problem.)
Just one question– why should we pay fee-for-service for diagnoses?
This is an area where much money is squandered on unncessary tests and over-diagnosis. . .
I would be inclined to include diagnosis in a lump-sum payment per episode of care that pays everyone involve (from diagnosis to rehab after surgery) a lump sum–plus a good bonus if the outocme is better-than-average at a lower-than-average cost.
But I’m very interested in your argument as to why diagnosis should be in a separate category.
Martha–
I sympathize. Your group doesn’t fit into an easy category, and legislators didn’t think about how to address your needs. (You are also not a group that can afford expensive lobbyists.)
In 2014, you will be able to go into the Exchanges, and get much better coverage.
But that does not adrdess your current problems. People become sick in real-time–they cannot postpone care.
I woudl seem that you shoudl be eligible for “waivers.”
Although some complain about the waivers, they are important to make sure that low-wage employees can keep whatever coverage they have now until 2014.
I don’t know enough about workers with multiple employers to know why you are not eligible for waivers, though my guess is that the employer needs to apply for the waive, not the employees who work for many employers.
I hope that you can get someone in Congress to look into this issue.
If you send me more information (maggiemahar@yahoo.com) I will try to publicize the problem.

Thank you, Maggie, I will email you with more details. Our plan has three tiers. We are also grandfathered, so we did not have to comply with some regulations. We did add the enrollment to age 26 for all tiers (they are not a risky group) and we raised the annual cap on the top tier to $750,000 per the regulation. The other two tiers have very low caps–that’s one reason it is easy to qualify, so raising them was not an option. We did apply for and got a waiver. In our case there is a board of trustees, equal number from the employers and the union. I am a union-side trustee. The problem is no one is sure the waivers will be granted again, so we are trying to plan for worst-case scenarios so that we can try to protect our members. The only lobbying organization I know of is the National Coordinating Committee of Multi-employer Plans (NCCMP). We are members.
I will email you. We could use all the help we can get.

Maggie –
I’m in the process of reading (almost finished) a 2009 book called “The Innovator’s Prescription” by Clayton Christensen, the late Jerome Grossman, M.D. and Jason Hwang, M.D. In their book, they describe hospitals that provide care focused on figuring out what is wrong with the patient as “solution shops.” Since hospitals usually don’t know what’s wrong when patients first present, they need to run tests and perform exams, take histories, etc. to find out. The time and expense inherent in this process can vary widely from patient to patient depending on the nature of the problem and whether there is more than one problem. The authors suggest that this sort of care should be paid on a fee for service basis.
By contrast, patients who come in for a specific procedure such as a hip or knee replacement or heart surgery, should best be treated in what they call a “Value Added Process” shop. The provider knows what should be done and to do it most efficiently, they should have a well defined process. This is the care that lends itself best to bundled payments. Some hospitals have or are in the process of forming VAP’s within the larger hospital. Think the Cleveland Clinic’s Heart Institute, for example.
In the case of chronic disease management, they suggest that payment should be on a “per member” basis or, I assume, risk adjusted capitation. Basic primary care lends itself to risk adjusted capitation as well.

Barry—
I’ve just been reading about bundled papyments for episodes of care and agree that this form of payment makes sense for procedures — orthopedic surgery, bypass, etc.
Meanwhile capitated payments make sense for primary care and treatment of chronic diseases in “medical homes”
But I don’t like the idea of fee-for-service payment for diagnoosis because it
encourages too many tests.
Today, in many hospitals residents and doctors simply order a battery of tests– rather than listening to and talking to the patient–diagnosing the old-fashioned way by taking a very careful patient history, looking at the patient, examinng the patient (hands on) etc.
Based on what the doctor sees and hears, he should normally be able to narrow down the diagnosis to a few possisbilities and then order appropriate tests.
With that model in mind it seems to me that hospitals should be paid a lump sum for a given diagnosis: i.e. $X amount for diagnosing congestive heart failure, $Y for diagnosing lung cancer, etc.
The amount might be 110% of what it costs a benchmark very efficient hospital to diagnose that disease. (110% is just a guess on my part.)
If an inefficent hospital does 20 tests and calls in 6 specialist before finally getting the diagnosis right, they’ll lose money on the diagnosis.
Of course some cases will be very hard to diagnose–these might require “outlier” payments.

Maggie –
I’m not wild about the fee for service approach for diagnoses made in hospital “solution shops” either. Since my knowledge of this area is limited to put it mildly, I would like to know more about how Medicare pays for this type of care now. Is a DRG determined after the fact for which Medicare pays a lump sum? Could more than one DRG apply and be paid for the same series of tests and consults? Perhaps some of the doctors who have a lot of experience working in a hospital environment could weigh in on this subject.

Academic medical centers have been taught to practice more aggressive medicine? A private practice oncologist told me years ago about a patient of his. The oncologist takes his vacation at the end of August. The patient was supposed to come in for chemotherapy on Wednesday, the day before the oncologist left. The patient couldn’t make it. The oncologist, therefore, did what he always did in that situation, wrote a prescription to be “filled” at a nearby, large, comprehensive, NCI-designated academic medical center. Had the patient received treatment in the office, the oncologist would have received $6,000, which the oncologist said was very generous. The NCI-designated cancer center, however, billed $28,000, and was paid 75% of this amount. (The oncologist knows about the large disparity between what the NCI cancer centers get and what he gets). I thought this was very revealing.

Maggie writes: “Going forward, the Affordable Care Act will boost Medicare payments to primary care physicians and nurse practitioners. At the same time, the Secretary of Health and Human Services (HHS) will have the authority to lower the fees that Medicare pays for services that are “over-valued.”
Joe Says: OK, so item 1) implies an increase in overall healthcare costs due to paying these folks more and that is balanced by 2) lowering fees for over valued services.
My questions are these:
- What if the Secy of HHS does not lower fees or finds few overvalued services?
- What happens if HHS is underfunded to analyze this effectively and can not find overvalued services?
- What happens if the HHS folks responsible for doing the job are mismanaged and fail to produce results?
- What if an attempt to reduce reimbursements for an overvalued service is reversed due to public outcry due to HHS being out manouvered by provider/insurer/maker PR such as has been shown effective by Wendel Potter?
- What if at some time in the future a new HHS secy doesn’t think this is important?
- What if an unscrupulous HHS secy or lower level regulator overlooks cost reduction opportunities due to potential personal gain in allowing for excessive payments to those providing overvalued services?
- What if a republican president gets elected?
- What if providers simply continue to increase their spending and claim higher costs even though the extra money is paying for marble floors and executive compensation?
- What if mosty hospitals are overpriced, making the average cost much higher than the reasonable cost?
- Even if HHS drops the reimbursements and a big hospital says they are in danger of going under, are they “too big to fail?” and must HHS reinstate the prior higher reimbursement rate or must the USGovernment bailed out the hospital like we did the banks?
- What if any and many of the above items occur in concert?
In a perfect world, ACA works, in the world I know, it is unreasonable to think it can deliver on its goals.

Joe Says–
1) implies lower overall health care costs. We’ll be getting much of our primary care from nurse practioners,not doctors. We’ll be seeing fewer specialists.
As for all of your what if’s . ..
Every other country in the developed world is able to deliver health care that is at least as good (often better) to all of its citizens at a much lower cost.
Joe, you seem to think that the U.S. is simply so much more corrupt and incompetent than any other country in the developed world that we can never hope to do what other countries do.
What can I say? If that’s your world view, that’s your world view.

Barry–
You raise a good question.
I did a little Googling, and from I what I can tell, Medicare normally pays for any test a doctor deems medically necessary.
The doctor must specifiy what he looking for (using the code for a disease that this particular test would detcect.)
But he doesn’t have to be right. If the test turns out “negative” medicare still pays for it.
This suggests that a doctor can go on a “fishing expedition”– ordering 20 tests (with 20 codes for the 20 diseases he’s looking for) before settling on a DRG.
The DRG can also be “upgraded” at a later point if additional testing or observation reveals problems not covered in the first DRG.
I’m told that at many teaching hospitals, residents are encouraged to “leave no stone unturned.” Those who test for rare diseases are seen as “thorough.” They are rarely taught to think about the cost. Some would argue that being “thorough” (and ordering 20 tests) is simply defensive medicine. . .
But I have heard medical students complain that they are simply being taught to order tests (bringing revenues to the hospital), but are not being taught to diagnose the old-fashioned way.
And we know that an “epidemic of diagnosis” via testing is leading to unncessary treatments, risks and expense.
I, too, would be interested in what doctors working in hospitals can tell us about this issue.

Maggie –
I’m not sure what the answer is to this issue from a reimbursement standpoint. I do think there is more that could be done in the area of transparency. If certain hospitals and doctors are much more cost efficient than others in arriving at a diagnosis, it would be helpful to make that information available to the public and, especially, to referring doctors. If some hospitals are deliberately encouraging their doctors to order extra tests to drive revenue, payers should make it clear that they know and can demonstrate that the hospital’s costs and charges are out of line with its regional competitors. For Academic Medical Centers, I’ve said before that we should pay them separately from general tax revenue their fully allocated costs for educating the next generation of doctors while R&D should be covered from NIH and other grants plus philanthropy so those costs won’t have to be built into their healthcare services pricing structure.
The good news is that over the long term, more care is gradually moving out of hospitals or at least from an inpatient to an outpatient setting thanks to advances in minimally invasive surgery, better and easier to insert devices, new drugs, etc while more effective medical management with drugs is reducing the need for other procedures entirely. Over time, the number of licensed beds and the employees needed to staff them can and should decline.

Barry–
I agree that over time, we will need fewer inpatient beds (even though 32 million currently uninsured Americans will be insured.)
As Don Berwick said in the film, MDM, “We overbuilt our hospital system and now we’re using it.” (This is a paraphrase from memory, not an exact quote.)
But outpatient care is becoming very, very expensive (see post– from 1998 to 2008, fees for outpatient services shot up 80%- rising faster than fees for inpatient care) and many unncessary surgeries are being done while many over-priced devices are being used. . .

Well Maggie, we agree that most countries in the world provide a better health care product (price and quality considered in the analysis).
The very best cost/quality countries have some sort of socialized medicine, not at all the way we have done or will do under ACA. Most countries dont allow direct to consumer advertising, most dont get politics involved with healthcare. Most dont do things the way we do or plan to do at all.
In fact, taking a whole new untested way of doing medicine smacks of experimentation without evidence. We should have followed the example of other countries more!
You are painting my realism as somehow being negative. It isnt, its simply realism. I see no benefit in attacking me rather than addressing the content I posted.

Joe says: I share some of your misgivings about how winds change politically in the US, and as a result we may see the defunding and/or delaying of the regulation writing process. That worries me because the plan I’m on is completely dependent on this process–we are not addressed in the legislation at all.
I’m curious what you mean when you say that most countires that deliver better-value health care practice some kind of “socialized medicine.” I find that term so overused it has lost any meaning for me.
I’m also curious about what research you think should have been done. I’m aware of several decades of research–maybe you’re looking for a different kind of research. Plus, in my reading of the law there is funding for many small pilot programs which may prove to be successful models.
Maggie: I’m working on that email. It’s long and the weekend has been busy.

Great post, but it actually understates the “market power” of hospitals and doctors. Look at the home health industry, where MedPAC wants to reduce payments and add co-pays due to rapid payment growth. Most home-health admissions follow immediately upon hospital discharges, and hospitals pressure home health agencies to accept patients after ever-shorter hospital stays in order to protect their margins. Hospital-owned HHAs often run operating deficits in order to protect hospital profits.
Meanwhile hospital-owned hospice agencies accept dying patients to provide the hospital another revenue source for the same patient and to remove the death from the hospital’s mortality stats. Hospice isn’t always about a “good death” for the patient; sometimes it’s about a good deal for the hospital.

Martha, Joe Says–
Martha– You are right “socialized medicine” is often over-used, and mis-used. See my reply to Joe.
And, in fact, we are following the example of Western European countries.
Reform won’t be easy, but I wouldn’t let Joe worry you too much. He enjoys hearing himself talk, but his opinions tend to be based on a combination of hear-say, and his own “this will never happen” world view.
You’re right about the pilot programs and the years of reserach that has been done, studying and comparing health care systems in other countries.
Joe Says– As Martha points out, the term “socialized medicine” is often over used and used inaccurately.
In a socialized system, hospitals are owned by the govt and most doctors work for the govt.
Canada and the UK are the only countries that have “socialized” systems.
And they do Not have the best health care systems in the West.
Comparisons looking at quality, outcomes, reserach, patient satisfiactiion, costs, efficiency suggest that France, Sweden, Germany, Switzerland are in the top tier–
Western Eurpean countries all have some combination of private sector / public sector care.
The system we hope to develop under the ACA is much like these systems these ways:
]
Private sector insurers are regulated by the government.
Insurers must cover everyone regardless of pre-existing conditions.
Some doctors work in the private sector and are paid fee-for-service; some work on salary for a hospital or the government; some are paid on a “capitated” basis (a lump sum to care for a patient for a year.)
Some hospitals are private; some are public.
Often there is a mandate that everyone buy a package of essential services.
Don Berwick (who has worked extensively in Europe) and other reformers has borrowed many ideas from these systems.
If you are interested in learning about health care in Europe, read this country-by-country analysis http://www.commonwealthfund.org/~/media/Files/Publications/Fund%20Report/2010/Jun/1417_Squires_Intl_Profiles_622.pdf
In Eureope, as under the ACA, ometimes employers are involved in funding insurance; sometimes they are not.
In thesee Western European countries government is involved in setting fees, just as Medicare sets fees. (In the U.S. private-sector insurers follow Medicare’s fee schedule pretty closely, though over the past 10 years, they tended to pay more (maybe 10% or 15% more) for each servic. But they “shadow” Medicare, over-valuing and under-valuing the same services.
Under the ACA insurers will have a harder time paying more to docs & hospitals because they will no longer just be able to pass the higher costs along in the form of higher premiums.
Like electric companies, they will have to justify rate increases to state or federal regulators.
In addition, they will no longer be able to cherry-pick, which means their profit marings will be squeezed. The 85-15 rule also puts them under financial pressure.
They have said that if Medicare cuts fees for overvalued service, they will be more than happy to follow.
Many have already begun paying significantly less for diagnostic imaging.
In Europe and under the ACA providers often receive “bonsues” for better outcomes or higher quality care.
In Europe and under the ACA nurse practioners pay a much larger role in providing care and patents see more primary care docs, fewer specialists.
I can think of just two significant differences between the system we’re proposing and Western European health care: In Europe most private sector insurers are non-profits, and in Europe governments do negotiatie with drugmakers for lower prices.
Though in the U.S. many of the large insurers that will be models are non-profits (Kaiser, etc.) and it’s likely that at some point down the road Medicare will begin to negotiate for discounts on drugs simply because we have to. They’re too expensive. That’s one reason the ACA funds comparative effectivness research.
Finally, you write: “You are painting my realism as somehow being negative. It isnt, its simply realism. I see no benefit in attacking me rather than addressing the content I posted.”
Didn’t mean to attack you, just suggesting that your world view is extremely cycnical–and not terribly constructive– but of course you are entitled to your world view.
Still when you repeat the same refrain in virtually every comment, it does get old . . . .
As to the “content” you posted, a long list of hypothetical questions that that seem to be coming from the top of your head doesn’t constitute content.

“In Europe and under the ACA nurse practioners pay a much larger role in providing care and patents see more primary care docs, fewer specialists.”
I think you’re wrong about this. I’ve lived in France, UK, Germany, and the US and I’ve never been seen by a nurse practitioner in Europe whereas they are all over the place in the US.
Please cite your source that NPs are more common in Europe or they provide more healthcare services compared to the USA.
NPs were actually started by American doctors in the 1960s.

Another source of information on European and Asian health care systems is T.R. Reid, formerly of the Washington Post. He is the author of “Healing America: A Global Quest for Better, Cheaper and Fairer Health Care.” He also did a “Frontline” episode for PBS called “Sick Around the World.” He actually used health care services in several different countries, Try this link:http://www.washingtonpost.com/wp-dyn/content/article/2009/08/21/AR2009082101778.html
It takes you to “5 Myths About Health Care Around the World,” a piece he wrote for the WP. It’s a quick, easy read.

Dear Martha – I’m sure that I didn’t make myself clear on the statement about experimentation either. What I meant by that was that the current legislation depends on new, untested, and unsupported by research and is therefore experimental in that sense of the word. There are good studies of how things went in other countries. I guess I am suggesting that since the results of other attempts to get away from a fee for service model are now available, it is incumbent upon us to use their findings.

Dear Martha,
I agree with you that “socialized medicine” is too wide a term with too many interpretations.
The interpretation I meant could be best summed up as “non-commercialized healthcare.” There are many alternatives throughout the world that deliver good care at a total cost that is not running away.
If there was only one change I think we could make in the US, it would be to end direct to consumer commercial advertising for treatments, devices, medications, hospitals, and doctors. If I had a magic wand, I suggest we implement something like what Dr. Lundberg wrote about in his book “Second Opinion.”
I think we should listen to Lundberg and others like him who have been immersed in the field and who now have a limited conflict of interest. Another author like this who talks about the bigger problem in disconnected/misguided governance is John Bogle. You can get Bogle and Lundberg excerpts and secondary publications via the internet at no charge.
I believe that the types of questions I ask are important, and I think you should decide for yourself what is or isn’t important. I think you should be leary of anyone who tells you how to think.
I like to think we should leave the businessmen out of healthcare, and I don’t think that will happen via well meaning government regulation over commercial entities.
I believe that people (and by extension the businesses and government departments the people manage) will follow their self interest. Any solution to the problem that counts on people (regulators, business folk, patients, doctors, politicians or even bloggers) going against their self interest will fail. I do not see people pursuing self interest as corrupt, just a fact of matter.

Gordon, Martha, Joe Says–
Gordon–
In the U.S.they’re called “nurse-practioners”–globally they are called “Advanced Practice Nurses.”(APNS)
Perhaps you lived in Europe before APNs became commonplace.
From a book titled “Nurse Practioners: The Evolution and Future of Advanced Practice Nurses”:
“In Europe the role of the Advanced Nurse is accepted and commonplace . ..
“In the Netherlands, the role of the NP is well established, with approximatelly 2,000 nurses working in advanced roles. ..
“France has established the nurse-anesthetist . .”
(All of the above from Nurse Practioners: The Evolution and Future)
One of the oldest speciallties for advanced nurses is as nurse-midwives, and they deliver most babies in Europe:
“In the United States, there are between 3,000 and 4,000 direct-entry midwives and about 3,500 certified nurse midwives. There are 120,000 more midwives in Europe than in the United States; midwives in Europe attend to 75 percent of births as opposed to 5 percent in the United States.” http://www.ehow.com/facts_5467781_midwifery.html
In Sweden and the UK nurses prescribe drugs.
In France, the role of the advanced nurse is expanding:
“There is a class of French nurses that resembles our nurse practitioners, but they have been granted practice liberties that would cause our American nurse practitioners to suffer paroxysm of jealousy.
One day a local thoracic and transplant surgeon offered to give me a tour of her ward, tempting me with the offer of being able to interview the transplant nurses that staffed and ran her multiple-transplant ward — that’s right, a multiple-transplant ward.”
Finally, a reader who lives in Scandanavia has told me that in his country, while a pediatrician examines a new-born at his first visit, after that generally healthy children almost never see a pediatrician–they see a pediatric nurse. (I can’t remember which country)
Martha–
Yes, T.R. Reid is very good.
Joe–
“Socialized medicine” has a very clear meaning:
“A system of health care in which all health personnel and health facilities, including doctors and hospitals, work for the government and draw salaries from the government.” (From a dictionary of medical terms.)
You didn’t answer Marth’s question: Exactly what provisions in the ACA are “experimental” and haven’t been researched?
Please refer to a specific seciton of the legislation and quote from the legislation.
Finally, George Lundberg is a good friend. He named me to the board of his institute,and sometimes cross-posts my posts.

Joe Says: I did as you suggested and checked out George Lundberg. I found his writing at healthcareblog.com, I believe it is called. I have to say I really don’t see any daylight between what he says and what Maggie says. He decries fee-for-service as a system that encourages overtreatment and says that about a third of Anerica’s health care dollar is wasted on unnecessary, redundant and sometimes dangerous treatment. This sounds exactly like what Maggie has been saying for a long time.

Dear Martha,
I agree with Maggie much of the time, however I see a lot of difference between the ACA (sometimes called Obamacare) and what Dr. Lundberg has suggested.
I believe that in order to reduce the money in medicine, and reduce the attraction of highly self interested individuals we need to reduce, not increase, the overall amount of money going into medicine.
My observations and insight gained from experience. I have actually been in a room after journalists have just left and listened to the principal speaker say things like “do you think they bought it?”

Joe Says: The ACA looks to me like it will do just that: reduce the amount of money thrown at health care and also to make sure what is spent is spent wisely, *if* the law is allowed to work the way it is intended to. It does this by acknowledging that everyone works in his/her self-interest, and shifting incentives to take that into account.
My experience stems from 18 years of making fiduciary decisions on a health benefits fund, hours spent poring over CBO and CMS reports and taking advantage of non-partisan foundations like the IFEBP.

Dear Martha,
I agree that if everything works as planned things would work out better, not just in healthcare but everywhere. Somehow though it often seems not to work out so well.
The parts of the law that increase the money going into healthcare will most definately happen, the parts that balance that, well maybe not. That was the point I was trying to make in my original comment on this post.
For instance one response says we’ll reduce over all costs because “We’ll be getting much of our primary care from nurse practioners,not doctors. We’ll be seeing fewer specialists.”
I agree we will get higher paid PCPs and more NPs and PAs in the workforce because we are funding them. However, the second point is betting on the come; that somehow this will reduce specialists. I mean it seems reasonable, but experience says it won’t happen that way.
The system we have had for the last decade was, I am sure, designed with the very best intentions. With the benefit of hindsight, we can see how it didn’t work out so well. As a simple example, did the original designers believe that a whole industry armed with lawyers, computers, lobbiests etc. would spring up to up-code an encounter? Essentially to legally overstate the effort to get paid more?
The government is essentially outsourcing its responsibilites to private firms and non-profits. The goverment then polices these same vendors with folks who move back and forth between the industry they regulate and the regulatory force. That system is simply going to result in what we already see; more of the same will result in more of the same.
I’d rather expand the VA system to cover more and more folks over time. Sure there are some problems at the VA, but we do get to see most of them. In the private world, we hardly ever see what really happens and a happy face is put on everything.

Joe Says:
When you say “it often does not work out well” I don’t know what you are referring to, since this has never been tried before. What part of the ACA do you refer to when you say “the parts that increase the money going into healthcare” and “the parts that balance?” It doesn’t sound to me as though you’ve really studied the legislation. I can’t say I blame you–it’s a difficult read.
The system we have had for the last decade (actually, it’s a lot longer than that) was not designed with the best intentions–indeed, from where I sit it looks like it evolved in a most inefficient and checkerboard way, and all players have had a hand in its problems. I think we need more “design.”
As for “outsourcing,” hopefully, as Medicare takes the lead in how it processes and pays claims, the private sector will follow. I agree, the government generally needs to do a better job of regulating, but there are powerful political players who HATE that. I also agree that the VA does a lot of things really well. I don’t really know why, but my theory is that they fall under the Department of Defense which means Congress can’t micromanage everything they do according to the latest political whims.
I am nervous about the rollout of this legislation. I am trying to be ready for unforseen and unintentional consequences. I am dealing with some of them now. But the law, overall seems fairly well designed to address the problems in our “system” and to take on the real drivers of the runaway costs.

Martha–
The VA is not part of the Dept. of Defense.
If it were, it would not work so well. (The Dept. of Denfense runs Walter Reed, which has some major problems.)
The success of the VA is largely due to one man -who re-structured it in the 1990s. His name is Kizner and was in charge of the VA at the time. Thanks to him, VA internally developiing its own health care IT– without any increase in the VA budget.
Becuase it was designed by doctors for doctors, it works!
(It”s not perfect, but it does a good job of preventing errors, providing a data-base that lets them compare the effectiveness and linking all VA hospitals so that they all have access to patients’ records.
The reform worked so well, in part, because it was “top down.” There wasn’t a great deal of squabbling. Kizner was in charge.
Meanwhile all of the docs at the VA work on salary for the VA. They don’t take consulting fees or kickbacks from drug comopanies, etc. They collaborate with each other. (By and large) And they tend to be a special breed– docs who chose a career at the VA becuase they like working with Vets. Often they are academics.
And they y practice evidence-based medicine.
During the Bush years, the VA was seriously underfunded– long waits for appts. It has more funding now so things have improved. And the changes that the Kizner made have stuck even though he is no longer there.
Phil Longman wrote an excellent piece about the VA for the Washington Monthly titled “The Best Care Anywhere”–you can Google it.

Maggie:
That’s very interesting about the VA. Since it is not part of DOD is it its own department? Is it under HHS? How was Dr. Kizner able to have so much autonomy and how is it that Congress has not reached in to muck things up?

Dear Martha,
When I said “it often does not work out well,” I meant that well intentioned legislation that is so often twisted on its head in the real world and delivers the opposite of its intent. Self-interest is like water, it flows through holes and erodes them making them bigger.
As in my example below, having a wide range of codes to select from to provide more payment for more complex encounters seemed to be a good idea. Now we can see how check box encounter notes have been made to generate the documentation supporting higher billing for what is dubiously more work.
Guided note making software is nototious for leading the physician down the path of clicking check boxes that increase the bill and generate documentation for care that was incidental and did not increase the complexity of the encounter, but did increase the bill.
Look at how health systems now add on a facility charge for work done in the same office by the same doctor as before a health system bought the practice. I’m sure whoever put that little gem in the payment system didn’t expect the billing for the exact same thing in the exact same office to dramatically increase.
Concerning your other question, what I meant was the parts of the approach that increase cost will be certainly implemented but the parts that reduce it maybe not.
I am saying the parts of the approach bolstered by ACA that include paying PCPs more and adding NP and PAs are sure to happen because it provides more food to the beast. I’m just not sure the effect will be reducing specialists.
As an example, look at the “doc fix” we now discuss and congress passes every year. The part that reduced the doc’s billing did not and has not occurred, yet I’m pretty sure at the time, some increase in cost was balanced by this projected reduction.
And no, I can’t understand the legalese in the bill without a whole lot of study time, its impossible for an average american without experience in the legal dictionary. But I take Maggie’s word for what is there, she does a pretty good job of explaining the concepts as do others like her.

Joe Says:
Well maybe the bundled payments or putting doctors on salary will take care of the problems you are worried about. Time will tell.
Do you have an idea for an alternative way to fix the system or are we just doomed to fumble along, in your view?

I just realized I made a horrible error before, but it is relevant to Martha’s request. The book I was referring to is Second Opinion by Arnold Relman (not by Lundberg). I think Relman’s proposed solution is similar to what I’d like to see.
I think the system needs to be turned a bit on its head. I think doctors are pretty good at allocating resources to patients based on the situation of the patient and the population. Generally I like the idea of simply limiting the amount of money we spend and letting the doctors do what the doctors do within resource constraints. This however would actually end up increasing the amount spent on care because we would spend far less on admin, overhead, marble, fountains, etc etc. I cant imagine most practing docs I know who would favor marble floors and player piano in the vestibule over the life of a patient.
Again, as I said before, the one best change I could suggest is to eliminate commercials for hosptials/devices/meds. That alone would make perhaps the most return for no-cost.
Why is it a very very good idea?? Because most all the organizations in healthcare hate the idea.

Joe Says:
I sounds like you and the ACA are on the same page after all. Programs allowed for in the law do just that: limit the money per episode and allow doctors to base their decisions on what is best for the patient and not what brings in the most revenue.
As far as overhead goes, player pianos and marble fountains not withstanding, overhead and profit only account for 7% of what the nations health care dollar is spent for, so that is not the main driver.
I agree with you about direct to consumer advertising. I think it’s atrocious.

Joe Says: Providers and networks will be required to form Accountable Care Organizations (ACO’s) if they want to continue to provide Medicare services. This will force providers to collaborate because, at least in some cases the payments will be based on the episode, say, hospitalization for congestive heart failure. There won’t be separate payments for each service and also the readmission rates will be looked at as well. This is embedded in the language of the law and the movement toward it is afoot now.

Martha, Gregory
Martha –I haven’t had a chance to look at your e-mail (I get about 100 e-mails a day –and that doesn’t include the spam).
On the VA — Kizer (I mis-spelled his name before) was the CEO. I believe the Veterans’ Administration is free-standing–not part of HHS. Since he wasn’t Congress for a lot of money, they weren’t in a position to block him. (He did things very efficiently, making the VA more productive.)
Eventually, Congress did push him out of that position, but at that point, the VA culture and way of delivering care had been changed.
Since Vets were generally happy with the changes, it would have been very hard for Congress to undo the reform.
The veteran’s lobby is pretty powerful in this sense: no Congressman wants to be seen as “uncaring” re: veterans.
Thanks for your informative comments on ACOs As you say, ACOs will be paid a lump sum per episdoe of care (usually a procedure such as a hip replacement or bypass surgery).
The money will be shared by the hospital, doctors who treat the patient (both in the hospital and doctors outside the hospital who see the patient a certain number of days before admission as well as those who follow up with the patient a certain number of days after discharge.
If the outcome is good, the care meets certain quality measures, and it it costs less than the lump sum allocated (because hospital and doctors collaborated to provide coordinated care, errors were avoided, and there was no “preventable readmission” the providers inolved in that episode of care will share in the savings. (The payor–i.e. Meidcare, a health plan or an insurer keeps part of the savings, and part is distributed to providers.) At the outset, a contract between the lead provider and payor stipulates the lump sum, and contracts between t he lead provider and subcontracters (other providers) spells out how the money is divided.)
The lump sum will be based on past experience at relatively efficient institutions.
This system of “bundled payments” already works at Geisinger, a large hospital system which is also a health plan (like Kaiser) and pilot projects are already up and running.
On Direct to Cosnumer advertising: it’s not going to disappear because television networks and other media are so dependent on the advertising dollars that come from Pharma . ..
The only way we could eliminate DTC advertising is if we hiked fees for premium channels, and taxpayers provided some subsidies for “free” television.
Since Congress isn’t even willing to fund NPR, this isn’t likely to happen.
(In other countries there tends to be more taxpayer/govt support for good programming–and, with the exception of New Zealand, they don’t allow DTC advertising.
So many things that are different here go back to the fact that our upper-middle class and upper class pay much less in total taxes (tax on income, tax on capital gains, inheritance taxes, VAT, property etc.) as a percentage of total wealth and income than the citizens of other countries.
Gregory –
A very interesting story about the payment to the NCI-designated academic medical center–and totally believable.
Some academic medical centers definitely are overpaid . .

Dear Martha, Well that is exactly my point. In a perfect world, ACOs would work well, but it is far from a perfect world.
In fact many have pointed out that part of the problems with healthcare cost are made worse by large market dominating health systems. Also, defacto collusion between referring PCPs and the specialists they refer to is part of the plan in these large systems. It is bad enough when they aren’t co-owned and both work for the same administrative master; can it be better if the two are managed by an entity who’s best interests are served with more PCPs and more specialists?
So encouraging ACOs will naturally lead to bigger players and further market domination so it may well have the opposite effect as intended by the law.
So what if it doesn’t come to pass that “There won’t be separate payments for each service and also the readmission rates will be looked at as well.” as you say but we do get large dominating AMCs masquerading as ACOs that hunger for ever more treatments and ever higher reimbursement?
Did you get a chance to take a look at Arnold Relman’s suggested solution in “second Opinion?”

Well, Joe Says, I think I’m going to give up. First you ask how something in the law will work and then you say it can’t work based on an assumption that nothing can work. It sounds as though you haven’t read the law, indeed, by your own admission you don’t really understand the language, so what you are saying seems to be based only on supposition. I can’t carry on a conversation like that. I’ll check out Relman.
Maggie, I’m sympathetic to the email volume. Whenever you are able to get to it I look forward to hearing from you. And yes, I agree DTC advertising is here to stay. It’s very hard to claw something like that back.

Just read The Health of Nations one of Relman’s papers. It can be found on the PNHP site. His large points sound almost exactly like the original post here from Maggie which surprises me because I think of PNHP as only advocating a single-payer system. Anyway, it sounds like he and Maggie agree on a lot.

Well Martha, I feel the same frustration!! I ask how future changes not yet implemented be used to balance current changes known and I get the same answer repeated — “because the legislation says so”! But I have enjoyed the conversation. I did give examples supporting my points, and in reviewing our discourse, it looks like they were never refuted.
I like Relman’s suggested structure because it puts descion making firmly in the hands of doctors rather than business folk, politicians or regulators. Relman’s solution in “Second Opinion” takes the money out of medicine. I suggest you read the whole book if you were interested in the snip you read on the web.
Its perhaps more straightforward than reading legislation because it is based on facts and gives reasons for where we are and where we can go. That’s why I like Maggie’s books too and I strongly suggest her book if you havent read it yet.
Probably a much better use of time rather than to read legalese where the paths through the loopholes towards more volume and compensation have undoubtedly been identified already by health system lawyers and business folk.

I have read Maggie’s book and it changed the way I think about the whole system.
The ACA is the law of the land so it makes sense to understand it.
I can’t refute a hypothetical.
You failed to cite the weaknesses that you claim are in the law. Probably because you didn’t read it. You have this in common with the vast majority of Americans. Nuff said.

The SGR in the Balanced Budget Act of 1997 is also the law of the land and has been for what 15 years? Should we have counted on that happening?
This and the other things I mentioned (upcoding via computer generated E&M notes and facility fee add ons for exactly the same service when an AMC buys a practice) are examples of how the system has been used to generate more and more billings for the big players. And the ACA, as you say, will naturally lead to big ACOs with market dominating potential.
So the specific problems I see in the legislation is that it encourages the big to get bigger. The price controls and adjustments in pricing models that are attributed to providing the savings are but dreams, like the SGR. I am suggesting that they have little chance of actually occurring based upon history.
Relman’s suggested answer seems to promote medium sized, physician run, non-profit enterprises with a single payor model that is effectively limited to a set percentage of GDP. Let the docs figure out how to best allocate the resources we choose as a country to provide them.
I believe that there is still time to correct the legislation, even a stated goal by the administration to do so. So why not correct it?

Joe Says: See? That wasn’t hard. You cited something specific to back up what you have been saying. I am out of my depth when it comes to the BBA. I did not read it and I am not an economist, I’m a player of
woodwind instruments. But I will speculate that the sustained growth was based on the wrong thing. As Maggie and many others point out, medical inflation outpaces GDP and regular inflation because of
certain cost drivers including the ones you mention. The ACA takes
these on directly.
Now I think we can all agree that the ACA will only work if it’s allowed to and that there may be unforseen and unintended
consequences. But you can say that about any piece of legislation–it’s not all that constructive to point it out over and over.
A while back I asked you to say what your ideal alternative. You got as far as small, physician-led networks with a single-payer system. Do
you advocate that on a massive, nationwide level or by state or region? How would you structure it so that we don’t repeat the same mistakes, or so that the networks don’t get too big or greedy?

Very interesting Martha. So you see the legislative point, but not the others. Are you familiar with upcoding, and facility fees or is it only the plan, not the consequences, that are of interest?
I think how something works in practice is of primary interest.

Joe Says: I am not famliar with upcoding or facility fees. Maybe you can explain why the bundled payments in the ACA would not address those. Perhaps I’m missing something.
I’m also curious if you have an answer to the question I posed in my last post: Do you advocate for small, physician-run networks with a single payer on a national level, or on a local or regional or state level, and how would you craft legislation to make it so?

Joe Says–
I’ve gotten a couple of complaints that you are clogging threads with too many comments— using the blog as your own personal soapbox–just throwing out questions even when you don’t really have anything to say.
Let me suggest that from now you, you comment only when you have something of substance to say that you haven’t said before, and that you limit yourself to two comments per thread.
When you monopollize a thread, you close off discussion– you notice that no one except Matha is replying.